CBOT Handbook of Futures and Options by Cbot

Author:Cbot
Language: eng
Format: mobi
Publisher: McGraw-Hill Education
Published: 2006-03-23T16:00:00+00:00

Selling Option Premium

Unlike the option buyer, when traders establish a position by selling an option, they have the obligation to make or take delivery if that option expires "in the money." Whereas option buyers have a defined risk—the most they can lose on a trade is the cost of the option—the option seller is accepting an undefined risk. In the case of either a call or put, the option buyer (option holder) must pay the option seller (option writer) a premium. The premium is determined during trading on an exchange and depends on market conditions, such as supply, demand, volatility, and other economic and market variables.

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